Rebalancing of Portfolio

Challenges of All Investors:

I wish I could have redeemed my client’s money at Sensex21000 and invested at 8000 Sensex?

Why are my schemes not performing? How can I select in performing schemes to enhance myreturns?

Can I have a portfolio where I can maintain Fixed asset allocation for me?

My advisor have too many clients, tough to follow everyone’s portfolio and advice on them?

I know a scheme is not performing well want to switch immediately.

Rebalancing your investment portfolio is the best way to ‘buy low and sell high.’ But how often is rebalancing necessary and what are the best strategies and times to do it?

Rebalancing a portfolio of mutual funds is simply the act of returning one’s current investment allocations back to the original investment allocations. Therefore rebalancing will require buying and/or selling of your mutual funds to bring the allocation percentages back into balance. In different words, rebalancing is an important maintenance aspect of building a portfolio of mutual funds, just as an oil change or tune-up is to the ongoing maintenance of your car. The idea of rebalancing is quite simple but the timing and frequency of rebalancing can add some strategy into the process.

Why Rebalance?

The reason why people rebalance their investment portfolios in the first place is important to understand. Often certain mutual funds or mutual fund types will do better than others over a given period of time. For example, over the course of one year your equity funds could do extremely well but your bond funds could perform poorly. If your original allocation was 80% equity funds and 20% bond funds, your end-of-year allocation may now be 90% equity funds and 10% bond funds. This may expose you to unwanted risk. Conversely if equity funds door poorly and bonds do well, the next year you may be taking a lower level of risk and may miss out on gains in the stock market.

MARS stands for Mutual Funds Automated Portfolio Rebalancing System. It is an asset allocation and scheme selection tool that is being offered to NJ partners and their clients. Depending on the risk appetite and goals of the client, the partner and client can choose from a wide range of portfolios available in MARS. The tool will provide regular reminders to the partner and client for maintaining the asset allocation and change underlying schemes periodically based on research done by NJ team. The client will need to authorize the transactions for the relevant changes to take effect.

What are the different portfolio strategies offered under MARS?

MARS offers the following 2 portfolio categories:

Dynamic Asset Allocation Portfolios:

Fixed Asset Allocation Portfolios

Under Dynamic Asset Allocation, the following portfolios are being offered to partners:

Portfolio Name

Equity (%)

Debt (%)

DAA – Aggressive

0-100

0-100

DAA – Moderate

0-60

40-100

DAA – Conservative

0-30

70-100

Under Fixed Asset Allocation, Portfolios are available from 10% Equity Allocation to 100% Equity Allocation.

Account Opening:

What is the minimum amount for opening MARS account? What is the minimum top up amount?

Minimum amount for opening a MARS A/c is R1 Lac. The minimum investment for top up is Rs. 10,000.

Does a client need to open a new TADA account for MARS?

No, a client does not need to open a separate TADA account for MARS. He can avail the facility from his existing TADA account only.

Can a client avail the MARS facility without opening a TADA account ?

No, having a TADA account is compulsory as all the transactions will be routed through the stock exchange platform

Mode of Investing:

What are modes for investing into MARS?

The client can invest through cheque, net banking, debit card, auto debit mandate or by transferring his existing MF portfolio into MARS. Client cannot transfer his stock portfolio into MARS.

Which schemes are restricted for transfer to MARS a/c?

FMPs closed ended equity funds, ELSS schemes (units under lock-in) and schemes having pledge units will not be transferred to the MARS a/c.

Which schemes will get automatically transferred to MARS account?

All the schemes in your existing portfolio which are also part of MARS portfolio will automatically get transferred to your MARS. For e.g. A Client wishes to transfer some of his existing investments to MARS portfolio. He has investments in HDFC Equity Fund, Reliance Growth Fund and Birla Top 100 Fund. Assuming MARS portfolio also has Birla Top 100 Fund, his total holding in Birla Top 100 will automatically get transferred to MARS portfolio. Of the remaining funds, the client may choose to select any, all or none of the funds to be transferred to MARS.

Miscellaneous:

Is there any lock-in in MARS?

MARS is an asset allocation and scheme selection tool. All the schemes in MARS are open-ended; hence there is no lock-in for the client. The client can buy / sell any scheme in his MARS portfolios subject to the exit load charged by the scheme.

What is the subscription fee for MARS?

As an introductory offer, the MARS a/c is currently free of cost to the client. However, nominal fees may be introduced later for the client. The only charge to the client is the transaction charge on the exchange platform, which is decided between the partner and the client at the time of TADA a/c opening. These charges are any way applicable to the client with or without MARS. There are no other charges in MARS.

Can a client open multiple TADA a/cs for di­fferent MARS portfolios?

No, the client cannot open multiple TADA accounts with the same holding pattern.

Can the partner select or change schemes in the MARS portfolio?

The MARS portfolio schemes are short-listed by the NJ research team. The partner cannot change the underlying schemes in the MARS portfolios.

Portfolio Switch:

Can the client switch from one MARS portfolio to the other?

Yes, the client can switch from one portfolio to another. However, only one switch can be done in calendar year.

Will there be any charges on the switch from one portfolio to another?

There are no charges for the portfolio switch currently. Normal transaction charges on exchange platform will apply as per agreement between client and partner.

Portfolio Rebalancing:

When will the Portfolio Rebalancing happen?

The Asset Allocation rebalancing for Dynamic Portfolios will happen on a quarterly basis and for Fixed AA portfolios will happen on a yearly basis in January of every calendar year. The portfolio change will happen every alternate year according to investment series. For e.g. – For all investments made in 2014, the scheme change will happen in Jan 2016 and for investments made in 2015, the scheme rebalancing will happen in Jan 2017.

What are modes available to the client for authorizing portfolio rebalancing?

How will the client and partner come to know about the schedule of rebalancing or asset allocation change?

The partner and client will be sent an SMS and email on the ‑rest day of the rebalancing schedule. The authorization window will be open for the client for 15 days. During this period, client will get regular reminders till the time he authorizes the transactions.

The client has forgotten to authorize the rebalancing transaction during the prescribed time. What should he do now?

In case the client has failed to authorize the rebalancing transactions, he will have to wait for the next rebalancing cycle for the auto change in his portfolio. However, the client always has the option of changing his portfolio himself by selling / purchasing / switching the schemes. None of the underlying schemes in MARS have any locking.

Can a partner authorize the transactions on behalf of the client?

No, a partner cannot authorize on behalf of the client.

CLOSURE:-

Client wants to discontinue his MARS account. What does he need to do?

In case the client wants to discontinue the MARS service, he needs to intimate the partner for the same. The partner can then uncap the client from MARS service through Partner desk. The Client will stop getting any future alerts for rebalancing on his portfolio.

If a client redeems his entire MARS portfolio, does he automatically get unmapped from MARS?

No, the client is not unmapped from the MARS platform. He continues to a part of MARS. If he wishes to invest more money, the minimum investment amount will be R 1 lac.

Can a client do partial redemption in MARS?

Yes, the client can do a partial redemption in MARS. The redemption amount will be proportionately redeemed from all the schemes as per their asset allocation.